BoE ‘Su­per Thurs­day’ looms as ster­ling jumps

Kuwait Times - - BUSINESS -

Bri­tain’s pound traded above $1.31 yes­ter­day, close to a 10-month high, as in­vestors eyed this week’s Bank of Eng­land “Su­per Thurs­day” for a steer on whether record-low in­ter­est rates could soon be lifted for the first time in more than a decade.

Ster­ling has been sup­ported in re­cent weeks by ex­pec­ta­tions the Bank might fi­nally be get­ting ready for a hike af­ter a se­ries of hawk­ish com­ments from pol­i­cy­mak­ers, but Gov­er­nor Mark Car­ney and most of his top of­fi­cials seem set to re­main in wait-and-see mode. Data show­ing Bri­tain’s hous­ing mar­ket and con­sumer econ­omy lost a small amount of mo­men­tum last month, as mort­gage ap­provals dropped to a nine-month low and un­se­cured lend­ing growth slowed fur­ther, had lit­tle im­pact on the cur­rency.

But the num­bers added to a run of weak data which, along with deep un­cer­tainty about the im­pact of Brexit on the econ­omy, have cooled the spec­u­la­tion that the BoE is poised to start re­mov­ing its cri­sis-level stim­u­lus. While ster­ling was trad­ing less than half a cent away from 10-month highs yes­ter­day at $1.3131, it was also close to its low­est lev­els in nine months against the euro, down 0.1 per­cent on the day at 89.50 pence. The BoE will also pub­lish a quar­terly In­fla­tion Re­port on Thurs­day, with econ­o­mists ex­pect­ing the Bank to push up its in­fla­tion fore­casts slightly but to lower its pro­jec­tion for growth af­ter the weak start to the year.

“There is a gen­uine de­bate in the bank (over rais­ing rates)... but we’re not ex­pect­ing any hikes in the next year,” said So­ci­ete Gen­erale cur­rency strate­gist Alvin Tan.

“There’s clear ev­i­dence, in our view, that the econ­omy is slow­ing down, and al­though in­fla­tion is on the high side, mo­men­tum seems to have ebbed.”

Some in­vestors see hawk­ish com­ments from pol­i­cy­mak­ers at the Bank as at­tempts to talk up a cur­rency that has lost al­most 15 per­cent against both the euro and dol­lar since last June’s vote for Brexit.

“With other ma­jor cen­tral banks nor­mal­iz­ing their own pol­icy stances, we ex­pect the MPC (mon­e­tary pol­icy com­mit­tee) to avoid send­ing an overtly dovish sig­nal this week in or­der to avoid ex­tended ster­ling weak­ness,” wrote BMO cur­rency strate­gists in a weekly note to clients yes­ter­day. But oth­ers say with more gov­ern­ment unity around Brexit, and with signs that the “hard Brexit” mar­kets fear could be averted, it made sense for the BoE to be mov­ing to­wards tight­en­ing. Three out of eight MPC mem­bers voted in fa­vor of a hike at the last meet­ing.

“We be­lieve that it would be log­i­cal for the BoE to sig­nal that it is mov­ing closer to rais­ing rates,” MUFG cur­rency an­a­lyst Lee Hard­man said. “The BoE should be en­cour­aged, as well, by noises from the UK gov­ern­ment which sup­ports its as­sump­tion for a tran­si­tional Brexit agree­ment.”

Fi­nance min­is­ter Philip Ham­mond, who cam­paigned for Bri­tain to re­main in the EU and is seen as a pro­po­nent of a rel­a­tively “soft Brexit”, last week lent some sup­port to ster­ling by say­ing he backed the tran­si­tional Brexit deal that Prime Min­is­ter Theresa May wants.

Ham­mond told a French news­pa­per over the week­end that Bri­tain does not in­tend to lower taxes far be­low the Euro­pean av­er­age in or­der to re­main com­pet­i­tive af­ter Brexit, but rather will keep a so­cio-eco­nomic model that is “rec­og­niz­ably Euro­pean”. —Reuters

LON­DON: Pedes­tri­ans pass the Bank of Eng­land in the City of Lon­don yes­ter­day. Last-minute talks with staff at the Bank of Eng­land be­gan yes­ter­day in an at­tempt to avert the first strike at the cen­tral bank in more than 50 years. —AFP

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